The House of Lords Select Committee for Science and Technology heard today (13 May) from the co-author of a report for the Centre for Business Research (CBR) at Cambridge Judge Business School on ways to spur UK growth by keeping more promising startups in Britain through new innovation and industrial policies.
David Connell, Senior Research Associate at the CBR, told the Committee that UK industrial policy has for too long focused on commercialising breakthrough academic research by supporting spinoff companies and subsidising venture capital investment in them through tax breaks. However, the success rate for these kinds of startups is very low and the most promising companies are usually sold to overseas-based corporations, resulting in loss of founding entrepreneurial leadership and truncated growth in the UK.
Better UK innovation policies for economic growth
A July 2024 report published by the CBR, co-authored by David Connell and Bobby Reddy, Professor of Corporate Law and Governance at the University of Cambridge, called for a major overhaul of UK innovation and industrial policy to address this issue. The report is entitled ‘Selling Less of the Family Silver: Better UK Innovation Policies for Economic Growth’.
The report calls for at least a quarter of total government total funding to support innovative UK business (currently around £14 billion a year) to be shifted into new policy instruments to help ambitious and capable founders from whatever background create businesses without starting down an investment path which inevitably leads to the business being sold.
Borrowing from the US and the EU to spur growth
“Other countries already have highly regarded policies which help do this,” says David. “They include government procurement-based funding in the US and the EU’s EIC (European Innovation Council) Accelerator programme. Besides borrowing from these there is much more that the government could do.”
The report also calls for the creation of an independent body, similar to the Office for Budget Responsibility, to monitor and advise government on innovation and industrial policy spending. Reporting on expenditure by key agencies and the analysis of impacts and outcomes from spending on different policies is currently poor, with no proper coordination across agencies or even within the Treasury.
“David Connell’s report highlights the most important challenge facing the UK’s science and technology economy – the early acquisition of too many of our most promising new companies by overseas-based corporations”, says Hermann Hauser, co-founder of Acorn Computers, Arm and the Amadeus venture capital firm. “The Government would do well to study his analysis of the reasons for this and its impact on economic growth, together with the practical proposals that he and his co-author Bobby Reddy have put forward to address it.”
Failing to capitalise on the UK’s excellent science and tech base
The enquiry theme of the House of Lords Select Committeee for Science and Technology was Financing and Scaling UK Science and Technology: Innovation, Investment, Industry.
In its call for evidence for the hearing, the Committee said: “Science and technology are essential to the UK’s future prosperity and wellbeing. The UK has a world-class research base, universities, and a growing scene of spin-out and startup companies. However, the Government acknowledges that the UK can struggle to translate its strengths in research, development, and innovation into UK-based companies, and economic growth.
“The backdrop for this inquiry is 15 years of meagre growth, despite significant R&D (research and development) investment, and a wider sense that the UK often fails to capitalise on its excellent science and technology base. This is particularly true when it comes to the establishment of large domestic technology companies, which often start up here but move overseas.”
The Committee also heard from Lord O’Donnell, former Cabinet Secretary and senior official at the Treasury, and from Greg Clark, a former MP whose roles included Minister of State (Department for Business, Innovation and Skills).
Featured academic
David Connell
CBR Senior Research Fellow
Featured research
Connell, D. and Reddy, B. (2024) Selling less of the family silver: better UK innovation and industrial policies for economic growth. Cambridge: CBR.
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